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The courts should rule on whether SB21 violates Alaska's Constitution

Ray Metcalfe
Article 8 of Alaska's constitution and common law regarding trusts both obligate the state to manage resources for the public interest. The oil tax reform known as SB 21 or the Make Alaska Productive Act may fail meet those legal standards. Aaron Jansen illustration

Does Senate Bill 21 violate Article 8 of the Alaska Constitution? It's time for the courts to answer this question.

Article 8 of the Alaska Constitution isn't the only question SB 21 places on the table. Does SB 21 violate the principles of public domain resource management prudence? Given the obvious irreparable damage, would the court grant an injunction on the implementation of SB-21 before it takes effect in January? Would the court rule, as they did with elected judges, on how close is too close before recusal is required?

Article 8 and the Legislature

I believe the Alaska Legislature's management of our resources is bound by common law to follow comparable commonly practiced methods of management resulting in commonly realized market-based proceeds in exchange for the right to extract a resource owned by a similarly situated government owner of a subsurface mineral.

My conclusions in this matter are a product of having chaired the Alaska House State Affairs Committee that, in cooperation with the Senate State Affairs Committee, wrote the legislation setting out statutory limitations on investment strategy for Alaska's Permanent Fund.

The Legislature's primary guiding light in the original structure of our Permanent Fund was attorney and Harvard University professor of law Belden Hull Daniels. Professor Daniels is one of the world's leading authorities in trust management and his message was clear; even a legislature is bound by common law precedent requirements for the prudent management of assets of the public domain.

Article 8 of the Alaska Constitution strengthens the obligation to abide by prudent management precedent and the legislative intent -- or in this case, the intent of the drafters of Alaska's constitution -- was clear. When Bob Bartlett urged Alaska's constitutional convention delegates to adopt an article to protect Alaska's resources from outside interests, it wasn't that Bartlett believed outside interests would attempt to take our resources by force; rather, he had seen firsthand in Washington the financial favors wealthy corporations were capable of purchasing from elected officials and wanted to prevent it from happening to Alaska. In anticipation of future legislatures corrupted by outside influences, Bartlett urged convention delegates to build protective barriers into our constitution to prevent improperly influenced elected officials from appropriating Alaska's resources to themselves, their family, their business partners, their clients, their past, present, or sought-after employers, their contributors, and/or others who, in ways that hadn't even been thought of yet, would support the candidacy of candidates likely to vote to appropriate Alaska's resources into the hands of the backers of their campaigns.

On this subject Bartlett said "A failure to write into fundamental law basic barriers to minimize fraud, corruption, non-development and exploitation may well be viewed 50 years from now as this convention's greatest omission."

Bartlett warned, "Two very real dangers are present. The first and most obvious danger is that of exploitation under the thin disguise of development. The taking of Alaska's mineral resources without leaving some reasonable return for the support of Alaska governmental services and the use of all the people of Alaska will mean a betrayal in the administration of the people's wealth."

A majority of the Alaska Legislature has now voted to sell Alaska's resources into the hands of ConocoPhillips, Exxon, and BP without requiring a "reasonable return for the support of Alaska governmental services and the use of all the people of Alaska." It can be easily demonstrated that the legislature has enabled ConocoPhillips, Exxon, and BP to take Alaska's resources for a tiny fraction of what Alaska's oil could bring on the world market. It can be easily proven that ConocoPhillips, Exxon, and BP are profiting many times their normally accepted rates of return for providing the same service to other resource owners. This is what Bartlett meant by "a betrayal in the administration of the people's wealth."

What purpose -- besides feel-good window dressing -- does Article 8 have, if not to prevent such a breach of fiduciary duty? Ten convictions in federal court have demonstrated that corporations were at one time substantially in control of Alaska's legislature. While federal indictments opened the door to the passage of a fair oil tax in 2007, it took only six years for those same corporations to regain control of the governor's office and both houses of Alaska's Legislature. They have since secured an oil tax substantially similar to the oil tax they were proven to have secured in 2006 with the assistance of legislators accepting their bribes. What purpose does Article 8 serve if Alaska's courts fail to intervene when a corporation-controlled legislature threatens, as Bartlett warned, to squander the people's wealth?

The second danger Bartlett warned of was "that outside interests, determined to stifle any development in Alaska which might compete with their activities elsewhere, will attempt to acquire great areas of Alaska's public lands in order not to develop them until such time as, in their omnipotence and the pursuance of their own interests, they see fit. If large areas of Alaska's patrimony are turned over to such corporations the people of Alaska may be even more the losers than if the lands had been exploited." ConocoPhillips, Exxon, and BP all have contracts with multiple OPEC countries who cooperate to limit production as needed to keep oil prices high.

Ten percent of BP's stock is held by Kuwait. That makes Kuwait BP's second largest stockholder. Only a few years ago, Kuwait owned 21 percent of BP and was BP's largest stockholder. By influencing BP to reduce Alaska's production Kuwait enables its own production to increase within the parameters necessary to maintain high crude oil prices. When Alaska's production is reduced, Kuwait shares in 10 percent of the revenue reductions. When Kuwait lets loose a corresponding increase of its own production, Kuwait receives 100 percent of the increased revenue. Kuwait clearly has an interest in seeing Alaska's production reduced. Such relationships are precisely what Bob Bartlett meant when he warned that "outside interests, determined to stifle any development in Alaska which might compete with their activities elsewhere."

How trusts work

Clipped From Wikipedia, the most concise summary available: In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a settlor, who transfers some or all of his or her property to a trustee. (In Alaska's case the settlor is the federal government who, for the first time in the admission of any state, transferred federal lands and mineral rights to the state of Alaska subject to strict management an disposal restrictions included in the Statehood Act.) The trustee holds that property for the trust's beneficiaries. (In Alaska's case, the trustees consist of all three branches of Alaska's State government and the beneficiaries include every Alaskan resident.) Trusts have developed since Roman times and have become one of the most important innovations in property law.

An owner placing property into trust turns over part of his bundle of rights to the trustee, separating the property's legal ownership and control from its equitable ownership and benefits. This may be done for tax reasons or to control the property and its benefits if the settlor is absent, incapacitated, or dead. Trusts are frequently created in wills, defining how money and property will be handled for children or other beneficiaries.

The trustee is given legal title to the trust property, but is obligated to act for the good of the beneficiaries. The trustee may be compensated and have expenses reimbursed, but otherwise must turn over all profits from the trust properties. Trustees who violate this fiduciary duty are self dealing. (In Alaska's case, trading commonly owned resources for campaign funds is arguably – self dealing) Courts can reverse self dealing actions, order profits returned, and impose other sanctions.

The trustee may be either an individual, a company, or a public body. There may be a single trustee or multiple co-trustees.

The trust is governed by the terms under which it was created. In most jurisdictions, this requires a contractual trust agreement or deed.

On the question of the court's willingness to interfere with the legislative process, the U.S. Supreme Court (the Roberts Court) has overturned a Nevada Supreme Court ruling, effectively establishing that legislative rights and prerogatives belong to the constituency of the elected official, not the official. When legislators exercise those rights and privileges, they do so at the pleasure of their constituency. If their constituency objects, they may not exercise such rights.

The U.S. Supreme Court unanimously agreed that the speech a Nevada legislator exercised on the floor of the Nevada Legislature could be limited by state statute. The court ruled that legislative speech is not the free speech of a legislator but a right a legislator exercises on behalf of his or her constituency. In Nevada, state statute bars elected officials from advocating and/or voting to provide an economic benefit to a contributor. More specifically, in Nevada Commission On Ethics v. Carrigan, an elected official was convicted of having violated Nevada's ethics statute after having, at a campaign workers request, assisted the best friend of the requesting campaign worker in securing a gaming license. The Nevada Supreme Court overturned the conviction and the U.S. Supreme Court, in a unanimous decision, reversed the Nevada Court, upholding the conviction. (Point of interest: The Supreme Court noted in their syllabus that Thomas Jefferson, when president of the U.S. Senate, pushed through an ethics rule quite similar to Nevada's. If I am reading the Nevada opinion correctly, almost every state has a statute that, had Alaska embraced a comparable ethic, would have barred ConocoPhillips employees from voting on SB 21.)

The Supreme Court has also ruled that elected judges who received campaign money from litigants in front of them should have recused themselves. The oil companies employ them and pay for their campaigns. How close is too close? Doesn't such a policy open the door for all corporations to compete for seats in Alaska's Legislature for the purpose of appropriating the assets of the public domain to themselves? Could our democracy survive if they can? These are questions our courts need to answer.

Self Dealing

I see no reason why Article 8 of Alaska's Constitution would not bind Alaska's entire Legislature in the same manner Nevada's statute binds an individual legislator. In my opinion, it is reasonable to argue that legislators are prohibited by fiduciary duties established in common law, as well as Article 8, from selling the resources that we own in common and they manage on our behalf for a small fraction of their world market value to their friends and contributors who pay for their campaigns. Similar actions in the private sector would be classified as "Self Dealing."

Article 8, precedent management requirements, and the Supreme Court ruling on elected judges all offer arguments worth making for the prohibition of selling Alaska's resources for a small fraction of the world market value of the resources to themselves, their family, their business partners, their clients, their past, present, or sought-after employers, or their contributors.

I believe that BP, Exxon and ConocoPhillips have engaged in fraud, and bribery to fleece Alaska of hundreds of billions of dollars and I believe subpoenas of federal investigative notes would turn up sufficient information to meet the 'preponderance of the evidence' standard of proof. I believe that they can be shown to owe Alaska a refund for ill-gotten gains and their past acts have arguably rendered their leases subject to termination. If they wish to intervene in a citizen taxpayer complaint over the State's mismanagement of our commonly owned resources, we should raise these issues and see how fast they settle.


Substantially similar precedent setting trust duty rulings may be found in Individual Indian Money (IIM) Accounts Cobell v. Kempthorne:

•  On June 10, 1996, the Native American Rights Fund (NARF), in conjunction with other attorneys, filed a class action lawsuit against the federal government for the government's failure to properly manage Indian trust assets. The lawsuit was filed on behalf of all present and past individual Indian trust beneficiaries, including over 300,000 current Individual Indian Money (IIM) account holders.

•  On February 4, 1997, the U.S. District Court for the District of Columbia certified the plaintiff class.

•  The assets involved in this suit are not government handouts, but money that belongs to individual Indians. Most of this money has been generated from the sale or lease of natural resources on allotted Indian lands. This lawsuit addresses the government's longstanding failure to account for these individual Indian trust funds.

•  The suit charges, among other things, that the federal government has breached its legally-mandated trust responsibility to prudently manage trust assets belonging to individual Indian trust beneficiaries, and has consistently refused to fix an accounting system that it has admitted is fundamentally flawed and completely ineffective in accounting for these assets. As a result, billions of dollars belonging to individual Indians remain to this day unaccounted for.

•  The Settlement: The Cobell case hinged in large part on whether or not an accurate accounting of the IIM accounts could be determined. After over 15 years of litigation the defendant and the plaintiffs both agreed that an accurate accounting was not possible and in 2010 a settlement was finally reached for a total of $3.4 billion. Their attorneys are expected to receive over $11 million in costs and fees.

For more details see:

•  Court opinions for Cobell v. Kempthorne:-- Cobellv.Kempthorne, 455 F. 3d 317 - 2006-‎Court of Appeals, Dist. of Columbia Circuit. Cobellv.Salazar, 573 F. 3d 808 - 2009-‎Court of Appeals, Dist. of Columbia Circuit. Cobellv.Kempthorne, 455 F. 3d 301 - 2006-Court of Appeals, Dist. of Columbia Circuit.

Ray Metcalfe was in the Alaska State Legislature in the 1970s and 1980s and has been studying, writing and lecturing to educate Alaskans on international oil tax policies and the value of Alaska's resources for over 25 years. He is now one of the hundreds of Alaskans working on the referendum to place the repeal of Senate Bill 21 on the 2014 August primary ballot. He can be reached at RayinAK@aol.com.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch, which welcomes a broad range of viewpoints. To submit a piece for   consideration, e-mail  commentary(at)alaskadispatch.com.